Hotel Laguna Saga Enters New Phase as Winning Bidder Emerges
A Northeast family has emerged as the winning bidder for the shuttered landmark’s leasehold, but a September trustee sale and Coastal Commission appeals still hang over the deal.
The long-running Hotel Laguna saga may finally have a buyer. The Orange County Business Journal reported in August that a Northeast family has emerged as the winning bidder from the court-supervised bid process for the shuttered downtown landmark, which closed on Dec. 11.
The prospective buyer is still negotiating the long-term ground lease with the Merritt family, who own the underlying land and building, and is working through regulatory issues, according to the Business Journal’s reporting as relayed by local outlet Best of Laguna Beach. Banc of California, the hotel’s primary lender, reportedly supports the transaction.
A clock is still ticking. Public records as of Aug. 12 showed Hotel Laguna scheduled for a trustee’s sale on Sept. 10, with bidding reportedly starting at $30 million. That sale has already been postponed several times and could be delayed again, or cancelled altogether, if the pending transaction closes.
The property’s troubles trace to owner Mohammad Honarkar, who bought the hotel in 2019 and set about renovating the Mediterranean-style building that once hosted Hollywood celebrities like Bette Davis and Errol Flynn. Before he could finish, the pandemic squeezed his cash flow and he was unable to make payments on a $195 million loan, the Los Angeles Times reported.
Honarkar’s dispute with investor Mahender Makhijani ended in a stunning arbitration outcome: Honarkar was awarded $1.34 billion in the dispute, the Times reported. A company spokesperson said, "Western Alliance was the victim of fraud." Honarkar has said he hopes to recover some of his properties, including the Hotel Laguna, now in foreclosure.
What is actually for sale is the leasehold interest, not the land. The receivership sale centers on the lease for Hotel Laguna at 425 South Coast Highway, plus a separate 1,101-square-foot condominium at 541 South Coast Highway near Wyland’s Gallery. The lease, not the dirt, determines who controls the property’s future, who deals with the city, and who can bring in investment. Atlas Hospitality Group and Hilco Global are managing the marketing process.
City officials are watching closely. City Manager Dave Kiff has said the city and the Coastal Commission share a strong interest in getting Hotel Laguna reopened as a visitor-serving property once a new owner is identified. Two city approvals involving the property were still under appeal before the Coastal Commission, which has been unable to move them forward without an owner or applicant to correspond with.
Identifying a successful bidder was never going to end the Hotel Laguna story; it begins the next phase, one that runs through a trustee sale calendar, a ground lease negotiation and the Coastal Commission. For downtown, a reopened Hotel Laguna remains the single most consequential hospitality question in town.
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